What is a Preliminary Title Report? A Guide for Home Buyers

A preliminary title report is a critical document in a real estate transaction that reveals the legal ownership history of a property and any outstanding claims against it. Reviewing this report immediately is essential, as it allows a buyer to identify deal-breaking issues like liens or easements and, if necessary, use their title contingency to withdraw from the purchase without penalty. This guide explains what to look for and why timing is crucial.

What is a Preliminary Title Report?

A preliminary title report (often just called a "title report") is a legal document prepared by a title company or attorney after a purchase agreement is accepted. It details the property's chain of ownership and highlights any problems, known as "defects" or "encumbrances," that could prevent the seller from transferring a clear title. Think of it as a background check on the property's legal status. The primary purpose of the report is to protect the buyer by uncovering issues before the sale is finalized.

You will typically receive this report within a few days of mutual acceptance. It is vital to review it as soon as you receive it. Your purchase agreement includes a limited review period, often just a handful of days, to approve the report or address problems. Failing to act within this window could mean waiving your right to contest title issues later.

What Problems Can a Title Report Uncover?

While your attorney or title officer will provide specific guidance, you should be aware of these common title issues:

• Liens: A lien is a legal claim against a property to secure a debt. The most common lien is a mortgage lien held by a lender. However, other entities can file liens if a homeowner owes money, including contractors (mechanic's liens), local governments for unpaid property taxes, or utility companies. A lien must typically be paid off at closing before the property can be sold.
• Easements: An easement is a right for someone else to use a portion of the property for a specific purpose. Common examples include utility easements for power lines or sewer pipes, or a "right-of-way" easement that allows a neighbor to access their home by crossing part of the property. An easement may restrict what you can build on that section of land.
• Encroachments: An encroachment occurs when a structure from a neighboring property, like a fence, driveway, or part of a building, crosses over the property line onto the land you are buying. This can lead to boundary disputes and legal complications.

Clear Title vs. Marketable Title: What’s the Difference?

Understanding this distinction is important for your purchase expectations. A clear title has no liens, easements, or other encumbrances. A marketable title, however, may have some recorded issues, like standard utility easements, that are not considered significant barriers to ownership.

Many standard real estate contracts only guarantee a marketable title. This means you could be obligated to buy a property even if it has an easement you find undesirable. Before making an offer, discuss with your real estate agent what level of title quality you can expect and what you are willing to accept.

How to Resolve Issues on a Title Report

If you discover a problem, act quickly. Your first step is to contact your real estate agent and the title company. It is in the seller’s best interest to resolve these issues to ensure the sale goes through. Resolution can involve:

• The seller paying off outstanding liens at closing.
• Negotiating with a neighbor to modify or remove an easement.
• Formalizing a boundary line agreement to resolve an encroachment.

Using Your Title Contingency to Withdraw

If a title issue cannot be resolved to your satisfaction, you may have the right to cancel the contract using your title contingency. This clause in your purchase agreement protects you if a significant, unfixable problem is found. To invoke this contingency, you must provide written notice to the seller through your agent or attorney before your review period expires. This allows you to back out of the deal and typically have your earnest money deposit returned in full.

Key takeaways for buyers:

• Review the preliminary title report immediately upon receipt.
• Understand the difference between a clear and marketable title before you make an offer.
• Work with your agent and title professional to understand and resolve any issues.
• Act within the specified timeframe to use your title contingency if you need to walk away.